Phoenix AG

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Phoenix AG

Hannoversche Strasse 88
D-21079 Hamburg
Germany
Telephone: ( +49) 40 7667-01
Fax: ( +49) 40 7667-2211
Web site: http://www.phoenix-ag.com

Public Company
Incorporated: 1856 as Gummiwarenfabrik Albert & Louis Cohen
Employees: 9,722
Sales: EUR 1.15 billion ($1.43 billion) (2003)
Stock Exchanges: Frankfurt
Ticker Symbol: PHO
NAIC: 326291 Rubber Product Manufacturing for Mechanical Use; 32622 Rubber and Plastics Hoses and Belting Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing; 313320 Fabric Coating Mills

Phoenix AG is a major supplier of sound and vibration control systems, technical hoses, and rubber components to the German automotive industry. The company's Comfort Systems division includes Stankiewicz, the German market leader in automotive sound isolation systems, and Vibracoustics, a joint venture with the German Freudenberg Group that develops vibration control systems for passenger and commercial vehicles. Phoenix's Automotive Comfort Systems subdivision serves German automakers DaimlerChrysler, BMW and Volkswagen, among others, while its Traffic Technology subdivision develops similar systems for trucks, trailers and rail vehicles. Phoenix's Fluid Handling division makes hoses and hose systems for vehicles and industry. The company's third business division, Conveyor Belt Systems, makes large conveyor belts for the worldwide mining industry. Other business units produce waterproof sheeting, rubberized fabrics, and profiles and roofing membranes for the construction industry. Comfort Systems generates almost half of Phoenix's revenues. Fluid Handling contributes roughly 30 percent to total sales while conveyor belts and other products add about 10 percent each to the total. Headquartered in Hamburg, Germany, the company has production facilities in Germany, Belgium, France, the United Kingdom, Spain, Romania, Poland, the Czech Republic, Hungary, Turkey, India, China, Canada, and the United States. In 2004, Germany's largest tire manufacturer Continental AG acquired a controlling interest in Phoenix.

Rubber Boots and Rubberized Fabrics in 1856

In 1856, two French brothers, Albert and Louis Cohen, established a rubber products factory in the northern German city of Harburg, near Hamburg. They hired 280 workers who started manufacturing rubber boots and rubberized fabrics 24 hours a day. Within a year, the two entrepreneurs almost doubled their workforce and expanded production capacity. The Albert & Louis Cohen rubber factory took on the production of rubber articles used in medicine, industry, and transportation as well as of rubber balls and sponges. Eight years later, the brand name was born that eventually became the company's name: Phoenix. However, for the time being, the company was renamed Vereinigte Gummiwaaren-Fabriken Harburg-Wien in 1872, after it was merged with Europe's oldest rubber factory—Vienna-based J.N. Reithoffer. The company was then transformed into a public corporation. Riding the wave of the economic boom following the foundation of the German Empire in 1871, the enterprise became a huge success within a few years.

With the rise of the automobile as a means of transportation, new uses for rubber products abounded. In 1894, the company started making tires for bicycles. Eight years later it began manufacturing tires for automobiles. In 1907, Vereinigte Gummiwaaren-Fabriken entered another new product market that became on of the company's mainstays for almost a century: conveyor belts. World War I, which began in 1914, suddenly confronted the company with serious problems, since it was completely cut off from the world market where it had bought its natural rubber. However, as early as 1904 they had set up a separate production line for a synthetic rubber-like material called "Galalith." After the war, the company's plant in Austria was transferred to Semperit AG. In 1922, the Phoenix brand became part of the company name when it was renamed Harburger Gummiwaren Fabrik Phoenix Aktiengesellschaft. In the years preceding World War II, Phoenix ventured into synthetic materials such as thermoplastic and KERIT phenol and patented a bonded metal rubber compound which they branded "METALLGUMMI" (metal rubber). The new material was used in automobiles and airplanes. During the bombing raids on Hamburg during World War II, Phoenix lost 60 percent of its production plant and shut down operations in the last months of the war.

Emphasizing Technical Rubber Products in the 1970s–80s

The introduction of a new currency in postwar Germany in 1948 ignited the economic boom that became legendary as the German Economic Miracle. Three years later, Phoenix entered an agreement of technical and marketing cooperation with the Firestone Tire and Rubber Company, then the world's second-largest tire manufacturer. The North American company, hoping to penetrate the German market, acquired 25 percent of Phoenix's raised share capital and Phoenix agreed to market tires for automobiles under the brand name "Firestone PHOENIX" in Germany. In 1971, Firestone, which had not been able to gain a controlling influence over Phoenix, withdrew from the agreement and from the German market and sold its share in Phoenix to Deutsche Bank. The bank, which also owned a share in northern German tire manufacturer Continental, developed a plan for the reorganization of the German rubber processing industry and—together with Continental's major shareholders—made plans for a merger with Phoenix. However, due to difficulties in financial evaluation as well as to high resistance and from workers, the deal was postponed.

The end of the cooperation with Firestone initiated Phoenix's transition from a manufacturer of rather simple, low-margin rubber and plastics products to a technology-partner of the vehicle manufacturing industries, including automobiles, commercial vehicles, trains, and airplanes. In 1973, Phoenix began to scale down its tire business. Ten years later, the company ceased its tire production completely. Instead, the company began to focus on technical rubber products with a higher profit margin. The production of rubber boots was phased out while its sports shoe business under the Palladium brand was spun off into the new subsidiary Palladium SA. Phoenix focused on manufacturing rubber parts for cars, technical hoses, large conveyor belts for the mining industry, car body parts made from molded polyurethane, rubber parts for commercial vehicles, and rubber-metal vibration damping components. In 1972, the company began to work with German car maker Mercedes-Benz on the development of the first air bags for passenger cars. Eight years later, Phoenix began the serial production of airbags. In 1987, the company won a contract to deliver waterproof sheeting for the Eurotunnel that connected France and Britain.

Expansion and Reorganization in the Early 1990s

From the 1950s until the late 1980s, Phoenix grew through a number of mostly national acquisitions. By 1989, the company had become Europe's eighth-largest manufacturer of rubber products. With about 6,850 employees, Phoenix generated $560 million in revenues. Roughly three-quarters of that total derived in Germany while most of the remaining sales came from Western Europe. Major car makers had become the company's single most important revenue source, contributing 57 percent of total sales. Setting its sight on the liberalized Western European market of the 1990s, Phoenix began to expand internationally. Sales subsidiaries had already been set up in Belgium, the Netherlands, the United Kingdom, and France. However, as Germany's large car makers began establishing assembly lines all over Europe, they required their suppliers to follow suit.

In 1989, Phoenix acquired a majority stake in Societa Manicotta Gomma, an Italian manufacturer of hoses for the automotive industry. In 1990, the company took over a Spanish supplier of technical rubber products for cars. In that same year, Phoenix set up two marketing subsidiaries—one in Sweden for the Scandinavian market and one in Cartered, New Jersey, to market industrial rubber products such as tunnel seals and railroad goods. In 1991, Phoenix acquired another Italian company and founded a marketing subsidiary in Austria.

In 1992, with European economies slowing down, Phoenix entered a period of radical internal reorganization. To stay competitive in an increasingly consolidating global market, the company initiated a restructuring program under the name "P/3S." A synonym for "Phoenix slim-speedy-strong," the program was aimed at creating a leaner, more efficient and customer-oriented organizational structure. The number of levels of hierarchy was reduced from eight to six. Phoenix's workforce was reduced by roughly one-fifth. The remaining staff was trained in the Japanese concept of Kaizen—collectively improving things one step at a time. Then, employees from different divisions, locations, and even companies worked together in teams to solve often complex problems. One of them was the issue of how to meet automakers' demand to cut costs by one-fifth while at the same time staying profitable. Together with engineers from Mercedes-Benz—one of Phoenix's most important customers—one such team reduced the number of engine bearings used in various Mercedes models from three to one. The new bearing was not only 40 percent cheaper but also lighter than its predecessors. Many such teams were assigned similar tasks. As a result of these efforts, Phoenix shrunk its inventory of raw materials by 40 percent, cut production times in half, increased the equipment utilization by roughly one-third and reduced the annual electricity bill by DM 10 million.

Company Perspectives:

High quality rubber products and acoustic systems have established our competence in technology and made us an international leader in systems, technology and expense in many domains.

A second step in the company's restructuring efforts was the reorganization of Phoenix's broad range of products and many subsidiaries under the umbrella of three market-oriented business divisions: automotive and non-automotive elastomers and plastics. The reorganization did not prevent Phoenix from going through a severe slump in sales in 1993, caused by a contracting market for the automotive and non-automotive elastomers and by increasing pressure on costs by car manufacturers. For the first time in fifteen years, Phoenix reported a net loss of over DEM10 million. However, due to the company's concerted effort to streamline operations and cut costs, Phoenix pulled itself out of the red within two years.

From Parts Supplier to Systems Provider: Mid- to Late 1990s

Another aspect of Phoenix's strategy for the 1990s was to focus on product lines in which the company was capable of gaining a competitive advantage by becoming the market leader. The year 1994 was an important milestone in that direction. With the acquisition of Stankiewicz GmbH, Phoenix entered the market of sound proofing parts for vehicles, which soon became one of the company's main income sources. Stankiewicz, a leading manufacturer of sound insulation mats for the passenger cabin with about 800 employees, had four production plants—two in Germany, one in the United States, and one in the Czech Republic. In the second half of the 1990s, Stankiewicz added two more plants, one in Belgium and one in the United Kingdom. In 1995, Phoenix entered a strategic partnership with the German Freudenberg Group. The two companies agreed to cooperate in the development, production, and marketing of complete vibration control and sound proofing systems for vehicles. With this strategic decision Phoenix evolved from a mere auto parts manufacturer to become a provider of whole systems, often developed in close cooperation with the company's customers. Freudenberg's own acoustics unit Dichtungs- und Schwingungstechnik KG was integrated into Stankiewicz in exchange for a 10 percent share in Stankiewicz.

A second step in the same direction followed four years later when Phoenix and Freudenberg established a joint venture for vibration control systems. This venture was named Vibracoustic and began operations in 2001. Phoenix was experienced in the development and production of bushings and air springs. Freudenberg completed the new venture with its hydro mount know-how. Together with Stankiewicz, Vibracoustic became one of Phoenix's three newly defined core business divisions: Comfort Systems. Besides passenger cars, the division was geared towards the commercial and rail vehicle markets. The other two core business divisions formed in 2000 as part of the company's "Strategy 2005" program were Conveyor Belt Systems and Fluid Handling. The latter focused on manufacturing technical hoses and hose modules for various applications in vehicles, including hoses for fuel, water, and air, as well as for a variety of uses in the mining, construction, chemical, and food processing industries, among others. The new divisions were strengthened by acquisitions while business activities that did not fit into the new strategic focus, such as plastics, molded plastic parts, airbags, and offset blankets were sold.

In the area of vibration control, air springs—which in the past had been used only in trucks—made their way into passenger cars to raise driving comfort to a new level. In 1998, Vibracoustic pioneered this emerging market when the company created an innovative design for air springs. Developed in cooperation with Krupp Hoesch Automotive and DaimlerChrysler, the new air springs were used for the first time in the Mercedes S-Class series and later adapted for other Mercedes models as well as for other upscale cars, including BMW and Jaguar. The new air springs were reinforced by individual strands of polyamide fibers, which were precisely laid along—instead of crisscrossed over—the rubber cylinder that constituted the spring body. The new design allowed the rubber to expand more easily, enabled the production of more compact air springs for passenger cars, and reduced the weight of a vehicle by roughly one-third. More advantages included smaller movement of the springs and less heat build-up. Phoenix set its sights on further lowering the cost for air spring vibration control systems, hoping that they would eventually be used in mid-sized passenger cars.

Global Player after the Fall of the Soviet Union

The opening of the Iron Curtain coincided with Phoenix's efforts to move low-tech and low-profit production to lower wage countries. Although the company's products had been marketed around the world, most of its manufacturing plants were still in Germany. Beginning in the early 1990s, as much as 30 percent of the company's production was moved abroad through acquisitions, joint ventures, or the establishment of brand-new factories. At first, production was moved mainly to Eastern European countries such as the Czech Republic, Poland, Hungary, and Romania. Later, Phoenix had factories in Turkey, India, and China. By 2000, about one-third of Phoenix's 9,200 employees worked outside of Germany. Besides cutting costs, the company was hoping to conquer new markets with this step, mainly in Eastern Europe and Asia.

Key Dates:

1856:: Albert and Louis Cohen set up a rubber factory in Harburg.
1864:: The PHOENIX brand is introduced.
1872:: The company goes public.
1902:: Phoenix starts making tires for automobiles.
1907:: Production of conveyor belts for the mining industry begins.
1935:: The company develops bonded metal rubber compounds under the brand name METALLGUMMI.
1972:: Together with Mercedes-Benz, the company pioneers air bags for passenger cars.
1978:: The company is renamed Phoenix Aktiengesellschaft.
1983:: Phoenix ceases tire production to focus on technical rubber products.
1989:: The establishment of a global production infrastructure begins.
1992:: Phoenix' management initiates an internal restructuring program.
1994:: The company acquires German vehicle-sound-proofing specialist Stankiewicz.
1995:: Phoenix begins to cooperate with the Freudenberg Group in the area of sound and vibration control for vehicles.
1999:: Joint venture Vibracoustics is founded.
2004:: German tire manufacturer Continental AG acquires a majority stake in Phoenix.

Despite the company's efforts to cut costs and introduce innovative products with above-average profit margins, Phoenix slipped into the red in 2001. Increasing oil prices made rubber, the company's main raw material, more expensive, while the fierce competition made it impossible to raise prices for Phoenix's products. Restructuring costs and higher taxes contributed to the negative result. While the company was making plans for new strategic ventures, such as new product development and acquisitions, and took steps to decrease its high debt, major changes in ownership occurred.

After the company's share value plunged in response to Phoenix's negative results, Deutsche Bank, a major shareholder, sold its Phoenix shares to German textile entrepreneur Claas Daun, who had already gained an 11.14 percent stake in the company. Phoenix's new single biggest shareholder, who became president of the company's advisory board in mid-2003, relieved concerns over the possibility of breaking up the company to sell its most profitable units to the highest bidder.

At the end of 2003, Phoenix's CEO of ten years, Konrad Ellegast, who had successfully repositioned the company as a specialized systems provider in well-defined markets in the 1990s, retired. Under Ellegast's leadership Phoenix's sales more than doubled, reaching EUR 1.13 billion in 2002, while the company's workforce grew to 10,000 and its network of subsidiaries in Germany and abroad expanded to about 50. The percentage of sales generated abroad increased by one-third between 1994 and 2000. Ellegast predicted that the number of suppliers to the automotive industry in Europe would shrink dramatically in the long run. While there were 8,000 such firms in the late 1990s, Ellegast expected that number to shrink to some 200 to 300 in the future. Only a few months later, the merger that did not come through in the early 1970s finally came to pass some thirty years later. In March 2004, Continental AG, one of the world's largest tire manufacturers with some 69,000 employees worldwide, announced its intention to buy Phoenix AG. Three months later, Continental announced that it had gained more than three-fourths of Phoenix's shares. In October 2004 the European Commission approved the deal under the condition that Phoenix sell its stake in the Vibracoustics joint venture and its air springs plant in Hungary. Continental was also obliged to sell Phoenix's wide steel cord conveyor belt production to its competitor Sempertrans. Continental was planning to integrate Phoenix into its technical rubber products division Conti Tech, which was to be taken public some time in the future.

Principal Subsidiaries

Phoenix Automotive GmbH; Stankiewicz GmbH; Vibracoustic GmbH & Co. KG; Eddelbüttel & Schneider GmbH; Mündener Gummiwerke GmbH; Phoenix Fluid Handling Industry GmbH; Phoenix Conveyor Belt Systems GmbH; TGB Transportgummi Bad Blankenburg; Phoenix Compounding Technology GmbH; Phoenix Dichtungstechnik GmbH; Phoenix Traffic Technology GmbH; Conseo GmbH; Phoenix Service GmbH & Co. KG; IPM GmbH; Phoenix Romania S.r.l.; MACFI S.A., Cornellá (Spain); Vibracoustic Iberica, S.L. (Spain); Vibracoustic Polska Sp.zo.o. (Poland); Stankiewicz Polska S.p.zo.o., Swarzedz-Jasin (Poland); Vest-Izol a.s. (Czech Republic); Vibracoustic CZ s.r.o. (Czech Republic); Gumimüvek Phoenix Hungária Kft. (Hungary); Phoenix Rubber Industrial Ltd. (Hungary); Conveyor Belt Systems Phoenix Ltd. (Hungary); Phoenix Airsprings Kft. (Hungary); Stankiewicz Belgium N.V.; BELTAN A.S. (Turkey); Phoenix Sigma Vibracoustic Pvt., Ltd. (India); Phoenix Yule Ltd. (India); Shanxi Phoenix Conveyor Belt Co. Ltd. (China); Phoenix France S.a.r.L.; Phoenix Industries S.a.r.L. (France); Stankiewicz UK Ltd. (United Kingdom); Phoenix Beattie Ltd. (United Kingdom); Dunlop Oil & Marine Ltd. (United Kingdom); Phoenix Vibracoustic Ltd. (United Kingdom); Beattie Industrial Ltd. (Canada); Phoenix North America Inc. (U.S.); Stankiewicz International Corporation (United States); Phoenix Beattie Corporation (United States.).

Principal Divisions

Comfort Systems; Conveyor Belt Systems; Fluid Handling.

Principal Operating Units

Vibracoustics.

Principal Competitors

The Goodyear Tire and Rubber Company; Bridgestone Corporation; Compagnie Générale des Établissements Michelin; Dana Corporation; ZF Friedrichshafen AG; Paulstra CRC; Tokai Rubber Industries, Ltd.; Sempertrans Nirlon Ltd.